Fuel Systems Solutions' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Fuel Systems Solutions Inc. (FSYS)

Q2 2012 Earnings Call

August 8, 2012 11:00 AM ET

Executives

Carolyn Capaccio – IR

Mariano Costamagna – President and CEO

Tim Standke – Executive Director

Pietro Bersani – CFO

Analysts

Graham Mattison – Lazard Capital Markets

Steven Dyer – Craig-Hallum

Rob Brown – Light Street

Sean Severson – JMP Securities

Colin Rusch – ThinkEquity

John Quealy – Canaccord Genuity

Matthew Blair – Macquarie

Presentation

Operator

Good morning. My name is Bony and I will be your conference operator today. At this time, I would like to welcome everyone to the Fuel Systems Second Quarter 2012 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Participants please limit yourselves to one question and one follow-up and then regain access to the queue.

Thank you. I will now like to turn the call over to Ms. Carolyn Capaccio of LHA. Ma’am, you may begin.

Carolyn Capaccio

Thank you, operator. Good morning, everyone and thank you all for joining the call today. With me today from Fuel Systems management are Mariano Costamagna, CEO; Pietro Bersani, CFO and Tim Standke, Executive Director.

Today, Mariano will provide an overview of results. Tim will review operations of FSS Automotive and FSS Industrial and Pietro will follow with the financial detail and he will then conclude with closing remarks and open the call for questions. If you have not received a copy of the press release that was issued today and would like one, please call LHA at 415-433-3777 and we will send one to you.

Before I turn the call over to the Fuel Systems team, I would like to remind everyone of the Safe Harbor statements included in the earnings press release issued today. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements, including statements made during the course of today’s call. Such forward-looking statements are based on the company’s current expectations and beliefs concerning future developments and their potential effects on the company.

There can be no assurance that future developments affecting the company will be those anticipated by Fuel Systems Solutions. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, some of which are beyond the company’s control and are subject to change based on various factors. For a more detailed discussion of some of the ongoing risks and uncertainties of the company’s business, I refer you to the company’s various filings with the Securities and Exchange Commission.

And now, it’s my pleasure to turn the call over to Mariano Costamagna, CEO. Please go ahead Mariano.

Mariano Costamagna

Thank you, Carolyn, and good morning, and good evening, to everyone. Welcome to the Fuel Systems Solutions 2012 second quarter conference call. On this call, we’re introducing Tim Standke, who is IMPCO’s Chief Technology Officer and the Executive Director of Fuel Systems Solutions, who work with me in the advanced technologies. He also represents the company at worldwide technical area and in our long efforts. And we will be speaking on our quarterly call today.

Since we spoke to you on our last call, we have accomplished quite a bit. We announced that we update our management structure, reclassified our segment reporting, which matched how we are managing this business and completed study for our U.S. automotive operation. We will update on this and our revised on today’s call.

Our new organizational structure provide key advantages, improving attention and response to the customers feedback, encouraging innovation and R&D coordination, managing operation more efficiently and driving cost efficiencies across the organization.

Today, we reported second quarter revenues of over $109 million, reflected an increase of our automotive volume, particularly DOEM volumes in Italy. This higher delayed OEM activities particularly benefited our gross margin of 27%.

During the quarter, despite of continued near-term investment in technologies in order to continue to execute our long-term growth strategies, our operating margin is slightly improved due to revenue shift towards delayed OEM.

Now I turn the call over to Tim Standke for an update of both division business. Tim?

Tim Standke

Thank you, Mariano. Good morning, everyone. I will start with the automotive division, which consists of the companies OEM passenger and light duty commercial transportation, automotive aftermarket, transportation infrastructure operations as well as the U.S. automotive unit, which was formerly a part of the IMPCO division.

Automotive posted second quarter 2012 revenues of $78.3 million, a decrease of 6%. In constant currency, the automotive revenue increased 4.2%. Operating margins improved to 7% versus 5% in Q2 2012, due to a shift in revenue mix for delayed OEM revenue to last year.

In Europe, delayed OEM volumes increased 66% to an average of 3300 units per month and had a positive impact on our profitability. This is particularly true in Italy. Chevrolet volumes were strongest with Nissan, Mitsubishi, Hyundai, Kia, Ssangyong and Ford all contributed. The price differential between alternative and traditional fuels continues to drive demand and offer an attractive payback in this region.

As a result, OEMs are expanding the number of CNG and LPG vehicles they offer. Our competitive positioning in this region remains very strong. We are unique in offering a complete systems that generate significantly higher revenue per vehicles then selling much larger volumes of components to OEMs.

Fuel Systems is competing effectively to be the OEM and delayed OEM partner of choice in all our geographies and our share of this global opportunity remain strong. Aftermarket volumes grew approximately 25% in Italy as the price of fuel in Italy and European economic woes make the economics or a conversion very attractive. We expect this trend to continue through the rest of the year.

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